Bills Digest 80 1996-97 Retirement Savings Accounts Bill 1996

WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.

Date Introduced: 4 December 1996House: House of RepresentativesPortfolio: TreasuryCommencement: On a day fixed by Proclamation, or
if no such day is fixed within 6 months of the Bill receiving the
Royal Assent, on the first day after the end of that period.

To allow financial institutions to provide superannuation
accounts that do not require a trustee structure, which is
currently required for entities to receive concessional tax
treatment. The details of the structure, in the form of Retirement
Savings Accounts (RSA), will be contained in regulations.

Superannuation products offered to the public are issued under a
trust structure that requires a trustee to be responsible for the
actions of the trust and to observe various prudential and other
regulations, principally those contained in the Superannuation
Industry (Supervision) Act 1993 (SIS). The incentive for funds
to comply with the SIS requirements is a reduced tax rate of 15%
which applies to complying superannuation funds. Non-complying
funds are subject to the normal taxation regime for companies and
trusts, which will generally make them liable to the company tax
rate.The trustee structure reflects the fact that superannuation
funds hold money on behalf of their members and are not profit
making bodies, with any net investment earnings being credited to
members accounts, rather than to the investment entity. It should
be noted that the provision of superannuation is not prohibited for
financial intitutions, which can establish subsiduaries that would
have a trustee structure and so could be complying funds and
receive the tax concession. A number of financial institutions have
established superannuation subsiduaries. Examples of such funds are
those offered by the AMP, ANZ, GIO, Macquarie, Commonwelath, MLC
and National Mutual.

As early as 1988, the then opposition suggeted an alternative to
the trustee based superannuation structure. Proposed RSAs were
largely seen to address three problems arising from the
superannuation arrangements:

Lack of Choice: Current compulsory superannuation payments are
made under the Superannuation Guarantee legislation, which requires
a percentage of an employees salary to be contributed to
superannuation. Prior to this legislation, compulsory employer
superannuation contributions were required under Federal industrial
awards. Award superannuation generally provides for contributions
to be made to industry funds, which have an equal employer/employee
representation as trustees. Awards do not generally allow for
individual employees to make a decision on the fund that
contributions made in respect of them will be invested. While
denying individual employees the choice of fund, industry funds
have the advantage to employers that contributions need only be
made to one fund, thus simplyfing the process to employers and so
reducing their administrative costs. The Workplace Relations
and Other Legislation Amendment Act 1996 originally proposed
to exclude superannuation from the matters that may be included in
industrial awards, but was amended in the Senate to retain
superannuation as a matter that could be included in awards.
However, there remains doubt as to whether superannuation will
continue to be a matter that may be dealt with in awards, with the
Government and Australian Democrats foreshadowing that the matter
may be excluded in future legislation.(1) Consequently, awards
directing that superannuation contributions be contributed to an
industry fund currently remain valid.

Small Balances: As originally introduced, the SGC scheme had no
means of protecting small balances in superannuation funds arising
from compulsory contributions from being eroded by fees and charges
imposed by superannuation funds. This resulted in many people being
disallousioned with superannuation as they would see their
contributions reduced. Negative investment returns could also
rapidily reduce small superannuation balances. However, since1995
this problem has been greatly diminished with the SmallSuperannuation Accounts Act 1995 providing for the
Australian Taxation Office to operate small accounts with no fees,
and member protection rules which provide that in small accounts
fees and charges are not to exceed the earnings of the account.

The Profileration of Accounts: With a more mobile workforce and
the increase in part-time employment with a number of employers, a
person may have a number of superannuation policies with small
balances that they take little effort to trace. While this may be
addressed by the ability of policy holders to withdraw balances of
less than $500 when their employment is terminated (the government
has indicated that this will be removed), the establishment of
rules to deal with 'lost members' and the fact that the number of
policies exceeds the number of employees suggests that the problem
remains. While such accounts could be amalgamated with the ATO
under the small accounts legislation, it is envisaged that RSAs
would offer a more attractive solution to the problem. However, if
an award requires contributions to be paid into a certain fund, as
often occurs, RSAs will not address this problem unless awards are
changed to allow the alternative payment into a person's RSA. There
may also be some employer reluctance to contribute to a range of
RSAs rather than to one industry fund due to increased
administrative costs.

There has been general agreement that the returns offered by
RSAs will be less than those offered by other superannuation
providers. This reflects the capital guarantee nature of RSAs where
the amount invested cannot be reduced due to negative investment
returns. In return for such security a lower return can be
expected. In this regard, there have been a number of calls for the
maximum amount that can be invested in an RSA to be limited, with
the most often suggested limit being $10 000. It was proposed that
once this limit was reached the balance of the account would be
required to be transferred to an investment based superannuation
account. Main proponents for such a limit include superannuation
industry bodies, such as the Association of Superannuation Funds of
Australia. Such a limit on the amount that may be invested in RSAs
has also been suggested by independent commentators, including
David Connelly, a consultant for the legal firm Phillips Fox and
the then Opposition spokesman on retirement income prior to the
1996 General Election.(2) The suggestions for a maximum limit on
the amount that may be invested in a RSA are based on the expected
low return from RSAs which over a number of years will see, on
current returns, a substantially lower sum accumulated for
retirement than a similar investment in an investment based
superannuation fund. This will reduce the ability of superannuation
savings to meet future retirement needs. The proposal for a maximum
limit for RSAs was rejected by the Government, with RSA providers
being required to inform holders of their investment options when
the limit is reached. This will allow RSA holders to chose if they
wish to remain in the RSA.

Another area where RSAs are envisaged to be more attractive to
investors is for those near retirement who wish a safe place to
'park' their superannuation prior to retirement. The capital
guaranteed, low risk nature of RSAs should make them more
attractive to such people than 'normal' superannuation where the
amount may be reduced by negative investment returns.

Part 2 of the Bill contains a number of definitions, including
those for:

Retirement Savings Account: an account or a policy provided by a
RSA institution, is capital guaranteed; is issued to an eligible
person; satisfies clause 15 (see below) and any prescribed
criteria; and is opened or issued on or after 1 July 1997, or such
later date as prescribed.

RSA institution: a bank, building society, credit union, life
insurance company or a prescribed financial institution that has an
approval under proposed section 26.

Eligible person: a person who satisfies the prescribed
criteria.

Capital guaranteed: where the balance of the account cannot be
reduced through negative interest or negative investment returns or
any reduction in the value of assets in which the policy is
invested.

Clause 15 provides that a RSA must provide one
or more of the benefits listed in the clause. These are:

benefits that are only available on the earlier of the holders
retirement or their attaining the age specified in the
regulations;

benefits payable on or after the holders death if the death
occurred before the holders retirement or attaining the prescribed
age where the benefits are payable to either or both of the
holder's legal personal representative or dependant/s;

where one or more of the above benefits is provided, the RSA may
also provide one or more of the following:

- benefits available on termination of employment where the
employer or an associate of the employer contributed to the
RSA;

- benefits available where the holder ceases work on account of
ill-health;

- benefits payable to the holders legal personal representative
or dependant/s where the benefit is payable after the holder has
retired or reached the prescribed age; or

- such other benefits as the Insurance and Superannuation
Commissioner (the Commissioner) approves.

The legal personal representative of a holder of a RSA is
defined to be the executor of their will, the administrator of
their estate, the trustee of the estate of a person under a legal
disability or a person who holds a power of attorney granted by the
holder (clause 16).

Division 2 of Part 2 (clauses 16 to 21) also
contains a number of other definitions. A large number of the terms
are defined by reference to other Acts, particularly the
Superannuation Industry (Supervision) Act 1993, and to the
definition of various financial institutions, such as banks, credit
unions and building societies, which are defined in terms of the of
the relevant supervisory code or Act. The Division also lists those
decisions which are subject to review by the Administrative Appeals
Tribunal. Clause 19 provides an extended meaning
of the terms 'employer' and 'employee' which are the same as those
contained in the Superannuation Guarantee (Administration) Act
1992.

Part 3 of the Bill deals with the approval of RSA institutions.
Clause 23 provides that a Constitutional
corporation (ie. a corporation subject to paragraph 51(XX) of the
Constitution) that is a bank, building society, credit union, life
insurance company or a prescribed financial institution, may apply
to the Commissioner for approval as a RSA institution. The
Commissioner is to decide whether to approve such a body within 60
days of the application, or 120 days if the Commissioner extends
the period, and if a decision has not been made by the end of the
relevant period the application will be taken to have been approved
(clause 25). The Commissioner is to approve an
application unless satisfied that the institution cannot be relied
on to conduct RSAs in accordance with the Act and regulations, and
the Commissioner may determine that the approval is subject to
conditions (clause 26). An institution may apply
for a variation of any conditions attached to an approval
(clause 28), and if the Commissioner fails to make
a decision on the application for a variation within the allowed
time (60 days or 120 if the Commissioner extends the period) the
application will be taken to have been refused (clause
29 - this may be compared with clause
25).As well, the Commissioner may vary any
condition on the Commissioner's own initiative (clause
30).

Clause 33 gives the Commissioner power to
suspend or revoke an approval. Without limiting the grounds on
which the Commissioner may so act, the clause specifies that an
approval may be revoked or suspended if the Commissioner is
satisfied, on reasonable grounds, that:

the RSA institution has requested the suspension or
revocation;

the institution ceases to be a financial institution that may be
approved to operate RSAs;

there has been a breach of the conditions attached to an
approval; or

the institution can no longer be relied on to comply with the
Act and regulations.

Except where the institution has requested the revocation or
suspension, the Commissioner is not to act without consulting with
the prescribed regulatory authority and obtaining the written
consent of the Minister. The Commissioner may lift a
suspension.

If an approval is suspended or revoked, the institution is to
notify the holders and employer contributors of the suspension or
revocation and not accept any contributions while the
suspension/revocation is in effect. If contributions are accepted
after the suspension/revocation, they must be refunded within 28
days (clause 34).

Operating and reporting standards are dealt with in Part 4 of
the Bill. The major provision, clause 38, provides
that the operating standards are to be fixed by regulation. The
provision provides a non-exclusive list of the matters that may be
covered by the regulatons, which includes:

who may hold a RSA;

the circumstances under which contributions may be
accepted;

minimum benefits;

the preservation and portability of benefits;

the payment of benefits; and

the provision, keeping and disclosure of information.

It wil be an offence to fail to comply with the operating
standards (clause 39) or for a RSA provider to
enter into an interest off-set arrangement where one of the
accounts is a RSA (an interest off-set arrangement is one where
interest earned in one account is used to reduce liability under
another account and is generally used in relation to home loans)
(clause 40).

It will also be an offence to place a charge over a RSA or to
assign benefits available under a RSA, and the RSA provider will be
guilty of an offence if they recognise such a charge or assignment
(clause 41). RSA providers will also be guilty of
an offence if they breach the capital guarantee condition
(clause 42) or to intentionally or recklessly fail
to comply with the requirement to lodge an annual return in
accordance with the approved form (clause 44).
Where the capital guarantee provision is breached, and a person
suffers loss or damage, they may seek to recover the loss or damage
in a civil action (clause 43).

The duties of RSA providers is dealt with in Part
5 of the Bill. Clauses 47 to 50 contain a
number of specific duties of RSA providers and make it an offence
to breach the duty:

A RSA provider is to take all reasonable steps to ensure that
arrangements exist to enable RSA holders to inquire about their
account/policy or to make a complaint and provides that such
inquiries or complaints are to be dealt with within 90 days. A
person with an interest in any death benefits must also be able to
make a inquiry/complaint. Maximum penalty for a reckless or
intentional breach: 100 penalty units (a penalty unit is defined in
the Crimes Act 1914 to be $100) (clause
47);

A RSA provider is to keep minutes of all meetings relating to
decisions regarding the operation of the Act or regulations for at
least 10 years. Maximum penalty for an intentional or reckless
breach: 50 penalty units (clause 48);

A RSA provider is to keep copies of reports provided to RSA
holders while they are relevant or for a minimum of 10 years and
make make them available for inspection by the Commission. Maximum
penalty for an intentional or reckless breach: 50 penalty units
(clause 49);

If a holder of an RSA requests that the balance of their RSA be
transferred to another RSA, a superannuation entity, an exempt
superannuation body or a deferred annuity, the RSA provider must
transfer the balance, worked out in accordance with the
regulations, as soon as practicable and within 12 months. Maximum
penalty for an intentional or reckless breach: 50 penalty units
(clause 50).

Clause 51 deals with the offering of RSAs and
makes it an offence, with a maximum penalty of 100 penalty units,
to intentionally or recklessly allow a person to become a holder of
an RSA unless they have made an application in accordance with the
regulations. The form of the application must be in accordance with
any determination made by the Commissioner. Such a determination
will be disallowable by either House of Parliament.

Division 4 of Part 5 deals with the provision
of information to RSA holders. Basically, the requirement is that
on application to become a RSA holder, or where a person is a RSA
holder, the RSA provider is to supply to the person the information
specified in the regulations. It will be an offence, with a maximum
penalty of 100 penalty units, to allow a person to become the
holder of an RSA unless the RSA provider is satisfied, on
reasonable grounds, that the information requirements have been
complied with. The offence will not apply where the information
relates to an event that occurred after the application or in
circumstances specified in the regulations.

The Commissioner will be able to issue an order requiring a RSA
provider to not enter into a contract for a RSA while the order is
in force if it appears to the Commissioner that a false or
misleading material statement is contained in a documentissued by
the body offering RSAs and is such that the issuer of the document
knows, or reasonably ought to know, that it would influence a
decision of a person to enter into a RSA. It will be an offence,
with a maximum penalty of 2 years imprisionment, to breach such an
order (Division 5 of Part 5).

If a RSA provider receives money in respect of an account that
has yet to be opened, clause 60 provides that the
money is to be held on trust until the account is opened. The terms
of such a trust are to be determined by regulation and it will be
an offence to intentionally or recklessly breach this
requirement.

The cooling-off period is dealt with in Division 7 of
Part 5. Where the application for a RSA is made by an
employer of behalf of an employee, the employee will have 14 days
after the required information is provided to request that any
balance of the account be transferred to another RSA or
superannuation entity. In such a case, the RSA provider is to
transfer the funds within 28 days and no fees may be charged.
Again, it will be an offence to intentionally or recklessly breach
this requirement.

The keeping of records and audit requirements are dealt with in
Part 6 of the Bill. Basically, the Part requires
that records relating to the provision of RSAs be kept for 5 years
and that RSA records be audited annually for compliance with this
Act (if and when enacted) and it's regulations. There is also an
obligation placed on auditors to inform the Commissioner of a
breach if the RSA provider has been informed of the breach and the
provider has not complied with a request by the auditor to report
on steps to be taken to rectify the breach or if the auditor is not
satisfied that the measures taken will rectify the breach. The
Commissioner will be able to report an auditor to the relevant
professional bodyif not satisfied that the auditor has comply with
their obligations under the Act and regulations.

Part 7 of Division 5 provides that RSA
providers are not to engage in certain conduct, which may relate in
either criminal or civil liability. A regulated act is defined in
clause 69 to be:

applying to become a RSA holder, whether as an individual or as
an employer;

opening a RSA or accepting a contribution to an RSA;

publishing or broadcasting a statement in relation to an
RSA;

issuing a document that that the issuer knows, or ought
reasonably to know, would influence a decision of a person to
eneter into a RSA;

making a payment out of a RSA or providing benefits in relation
to a RSA; and

doing anything in relation to the above acts.

It will be an offence, with a maximum penalty of 5 years
imprisionment, to intentionally induce a person to engage in a
regulated act by dishonestly concealing material facts, making a
statement that the maker knows is false or misleading or to record
information that the person knows is false or misleading
(clause 70). If a person engages in conduct in
relation to aregulated act that is misleading or likely to mislead
they may be liable to civil action (clause 71).
Similarly, civil liability may arise if a RSA provider engages in
conduct that is misleading or likely to mislead when dealing with
the holder of a RSA or an employer contributor to a RSA
(clause 72). It will also be an offence, with a
maximum penalty of 5 years imprisionment, for an RSA provider to
intentionally or recklessly issue a regulated document that that
the provider knows contains a material statement that is false or
misleading(clause 74). Such action may also give
rise to civil liability (clause75).

Part 8 of the Bill deals with unclaimed money,
which is defined to be funds that are held in a RSA where the
holder has reached retirement age, a benefit is payable to the
holder, the holder has not applied to have the benefits paid and
the RSA provider has not been able to locate the holder after
making reasonable efforts. Money will also be unclaimed if the
above conditions are satisfied but the holder has died and the
provider is unable to contact the beneficiary/s of the holder after
taking reasonable efforts to find them (clause
79). Unclaimed money is generally to be paid to the
Commoissioner of Taxation annually and is to accompany a report to
the Commissioner (clauses 80 and 81). However, if
a State or Territory law requires that unclaimed money be paid to a
State/Territory authority and that law satisfies reporting
requirement that are the same as those relating to the Commissioner
of Taxation, the unclaimed money is to be paid to the
State/Territory authority (clause 82).

Rollover: If the conditions specified in the regulations are
satisfied, Part 9 of the Bill provides that funds
in a RSA are to be transferred to an eligible rollover fund as
specified in the Superannuation Industry (Supervision) Act
1993. This will apply regardless of the terms of the RSA.

The monitoring and investigation of RSA providers is dealt with
in Part 10. It provides for:

reporting to the Insurance and Superrannuation Commission, the
production of accounts and other information on request and the
inspection of premises;

the appointment of inspectors and their power to enter premises
to inspect books;

the issue of warrants in relation to books that have not been
produced; and

the examination of people by an inspector.

Self-incrimination will not be a valid reason for refusing to
produce books or to refuse to give information, although such
information will generally not be admissable as evidence against
the person except in proceedings relating to the falsity of the
statement or record. Legal professional privilege will be a valid
reason for refusing to provide information.

The provision and use of tax file numbers (TFN) is dealt with in
Part 11 of the Bill. There will be no compulsion
for a person to provide their TFN, although RSA providers will be
required to request a person's TFN if they have not provided it.
TFNs are to be used to trace the funds belonging to a RSA
holder.

Part 12 of the Bill contains a number of
offences relating to the compliation of statements and records by
RSA providers. Basically, the Part requires RSA providers to keep
satisfactory records of their accounts and makes it an offence to
knowingly or recklessly make false statements or records or to
intentionally make deceptive or misleading entry/s in such
records.

The protection of RSA holders accounts is reinforced by
Part 13 of the Bill which will allow courts to
issue orders preventing the transferring of funds from RSAs if
investigations, legal proceedings or criminal prosecutions have
begun against a RSA provider or an asociated person. The Part also
provides for injunctions to be issued to prevent contraventions of
the requirements imposed by the Bill.

Part 15 of the Bill will give the Commissioner
power to exempt a person, or class of people, from a number of the
requirements imposed by the Bill and regulations. The more
important provisions that an exemption may be granted for relate
to:

the operating standards of RSA providers;

liability in relation to certain documents and statements;

certain duties of RSA providers;

the rules relating to the payment of unclaimed money; and

provisions relating to the rollover of funds.

In addition to being able to exempt people from these
requirements, Part 15 will also allow the Commissioner to modify
the way in which the provisions may apply. Any exemptions or
modifications will be required to be published in the Gazette, but
will not be subject to disallowance by Parliament. However, this
may change if the Legislative Instruments Bill 1996, which has been
before Parliament for a considerable period, is enacted.

The remaining provisions of the Bill deals with largely
administrative matters, the more important relate to:

the rules of procedure that are to apply when a court action
under the Bill is undertaken (Part 14);

a requirement that employer contributions to RSAs to be made
within 28 days of the due date;

the intention of an entity that provides RSAs so that the
intention of senior officers of such an entity may be taken to be
those of the provider;

the exemption of the Commissioner and staff of the Commission,
inspectors and certain other peole from civil liability for their
actions;

requests to the Commissioner for internal reconsideration of
certain decisions;

the collection and publication of statistical information;

making the Bill and regulations subject to certain Acts, so
that the the Crimes (Superannuation Benefits) Act 1989,
Australian Federal Police Act 1979 (which provide for the
forfeiture of superannuation benefits when certain offences have
been committed) and the Bankruptcy 1966 apply to RSAs;
and

A major reason given for the introduction of RSAs is to provide
greater choice for those contributing, either compulsorily or
voluntarily, to superannuation. The ability of an individual to
chose, where compulsory contributions allow such a choice, the most
appropriate vehicle for their retirement savings largely depends on
the information available and the person's ability and desire to
use such information. Small superannuation balances, which the RSA
regime aims to address, are often either ignored or forgotten by
the contributor, as the existing regime for lost members and that
contained in this Bill illustrate. Where the contributor has no or
little interest in the return from the account, it will be possible
for financial institution offering an RSA to offer different rates
of interest on various types of RSAs, unless this is prohibited by
the regulations. A RSA could therefore have a relative attractive
interest rate to attract customers, with this rate reducing in
time.

Theprospect of RSA providers offering a very low rate of
interest to people who have little interest in their accounts may
be compared to the situation that existed for social security
beneficiaries prior to the introduction of the deemed interest
rules. While there was no doubt that a number of social security
recipients wished to have minimal income from savings for purposes
of the social security income test, there were also a large number
of people who received minimal interest due to their lack of
interest, or inability, in monitoring the various returns offered
by financial institutions. When the deeming rates of interest were
introduced, financial institutions were able to offer the required
rate of interest.

In light of the above, it may be argued that a minimum rate of
interest should also apply to RSAs. If financial institutions are
able to offer accounts to social security recipients that comply
with the minimum deeming rates such institutions should also be
able to offer the same, or similar, rate of interest on RSAs,
particularly when the number of transactions relating to a RSA will
normally be lower than those applying to other accounts as regular
withdrawls are prohibited from RSAs due to the preservation
rules.

While RSAs are to be capital guaranteed, this should not be
confused with a guarantee that the money cannot be lost. While RSAs
cannot be reduced by negative investment returns, if the financial
institution offering the product faces difficulties and is forced
into liquidation the funds contained in a RSA will not be
guaranteed. The difference between a capital guarantee and an
absolute guarantee will need to be understood by those acquiring a
RSA, particularly those using the RSA as a 'safe' place to park
their superanuation prior to retirement.

An unusual part of the Bill is the Commissioner's power to
exempt people from the operation of important provisions of the
Bill or to modify how it will apply (Part 15). The granting of such
a power to the Commissioner raises the question of the relevance of
the provisions of the Bill and the regulations that may be modified
or from which people may be exempted. It may be argued that the
impact of Part 15 is such that these provisions could be replaced
by ones that grant the Commissioner a total discression as to how
such matters are to be dealt with and remove the need for
regulations.

Chris Field
31 January 1997
Bills Digest Service
Information and Research Services

This Digest does not have any official legal status. Other
sources should be consulted to determine whether the Bill has been
enacted and, if so, whether the subsequent Act reflects further
amendments.

IRS staff are available to discuss the paper's contents
with Senators and Members and their staff but not with members of
the public.

ISSN 1323-9031
Commonwealth of Australia 1996

Except to the extent of the uses permitted under the
Copyright Act 1968, no part of this publication may be
reproduced or transmitted in any form or by any means, including
information storage and retrieval systems, without the prior
written consent of the Parliamentary Library, other than by Members
of the Australian Parliament in the course of their official
duties.

Published by the Department of the Parliamentary Library,
1997.

This page was prepared by the Parliamentary Library,
Commonwealth of Australia
Last updated: 19 March 1997